It has been experienced that in addition to the natural growth of population the migrants from rural to urban areas have created enormous problems. In result these problems have affected the human settlement patterns and degraded environments in the metropolitan areas of the Third World, Pakistan particularly Karachi. The phenomenal development which occurred at an apparently fast pace has also created pressures on basic utilities and problems for the authorities concerned with the improvement of environment in the metropolitan areas. Lack of adequate housing and infrastructure for millions of people of low-income groups living in slums locally known as Katchi Abadis are the main challenges for the urban planners in Pakistan. The essential focus of this research is on human settlement patterns and particularly on those physical and social problems affecting the environment in metropolitan Karachi as a whole and in the Katchi Abadis in particular. To understand the nature of the problems and formulation of applicable policies the research is based on the data collected from Lyari and Korangi two Katchi Abadis in Karachi. In view of the analysis of the process of slum formation, policies and hindrances to the execution of applied policies and present situation in the case study areas this study has proposed two types of policy and a modified management system for the adequate implementation of proposed policies to overcome the problems of Katchi Abadis in Pakistan, particularly in two selected Katchi Abadis in the Karachi metropolitan area. These policies may hopefully result in upgrading the environment in large cities in developing countries and in Pakistan and Karachi in particular.